A Canadian dilemma?

8 Replies

I'm a Canadian that lives in the California. I have about $100000 in equity in a rental property up in Canada that I bought years ago with no knowledge of real estate what so ever. The rent is $1100. Mortgage is $700. Hoa $100. Taxes $150. It all adds up to almost zero cash flow. After learning the ropes a little I'm realizing that I need to change this situation. What would you do???

My initial thought is sell the property and use the equity to buy cheaper properties with more potential for cash flow throughout Canada.

BUT...is this even possible in the Canadian Market.

If so would make Canadian money that I'll get double taxed on if I ever want to bring it to the US. Is it even worth it?

I just don't know what to do? Please help!

You're going to get advice/suggestions from all over the spectrum. How about telling us what you're thinking you might do?

@Account Closed  

There are lots of places in Canada where you can get better numbers than what you posted as your current property above.   That said, if you were to look in the U.S.A. rust belt or Texas, you could find even better returns.

As Aaron stated, more clarity around your thoughts/plans will help focus the advice and feedback you receive here (and might limit the number of turnkey solicitations you receive).

As far as selling your current property, if you no longer maintain a Canadian presence you could be taxed as a foreign investor.  The biggest difference being the timing of when your capital gains tax is paid.  The best advise would be to talk to an accountant in Canada to get a thorough understanding of how it will play out.

As for bringing the resultant capital into the U.S.A., I cannot tell you what additional tax could be due as I've only ever pushed capital into the U.S.A. from Canada, never pulled it back in.   When we pull capital in the other direction there is often taxes due, but it's never "double taxation".   Perhaps @Steven Hamilton II could provide you with a general outline of what to expect.

Finally, welcome to BP!

I think I will definitely sell it in the near future and try to find a buy an hold property that meets the 1% rule or above it.  I will definitely get a property manager to take care of it.    I would only use about of $50000 for a downpayment and then invest the other $50000 elsewhere.  I know I can transfer $10000 a year into the US with out being taxed.  I can use that money to put more down payments on homes in the US.  It also crossed my mind to put some in a REIT in Canada as well.   In the end I'm diversifying and should generate more positive cash flow from the 3 outlets instead of no cash flow at all.  What you think?

@Joey Noel  you have given too little information to give you much advice.  Is the property in Canada appreciating in value?  If so how much?  What is the total value/purchase price of the property there?  How much will you pay in taxes, how much depreciation will you have to recapture, how long until its paid off?  How much interest are you paying?  Is it a 15 year note or a 30 year note?  All of this information makes a huge difference in investing.  Very few of my properties have much positive cash flow, but they have 15 year mortgages so they pay off fast.  I don't need the money to live on so it works out fine for me.  Instead of putting money in the bank to save for another down payment I take a 2nd mortgage for the down payment and wrap the loans together.  That way my money isn't sitting around doing nothing.

@Account Closed  

In Canada we do not have long term mortgages - you will be hard pressed to find anything longer than 7 to 10 years and silly to pay the premium for such a long term.  The most common residential mortgage term in the country is 5-years, though mortgages from 6-months to 3 years are also available.

Depending on how long since Joey's last mortgage renewal, he should be paying <=3% interest on a residential mortgage ... something you do not see in the U.S.A. ;) ... don't worry, we more than make up for it in tax rates :-)

the property is a townhouse condo in Medicine Hat Alberta.  I paid $230000 and it's worth about that now.  Interest rate is 3% and I have 3 more years left with 25 year amoratization. Taxes are $1800 a year.  Total mortgage payment is $700.  Hoa $100.  Property manager $100.  

I've also thought of getting a HELOC and using that for downpayment on another property . But I have had difficulty with financing in the past because I'm not living in Canada however I am a. Canadian Citizen. But then the question is where in Canada is good for rental property right now?

@Joey Noel 

Not close enough to Calgary to get the benefits, nor close enough to the new drilling in SK.   I was in Medicine Hat with my son back in August - stopped long enough for lunch and to see if a relative was home.

As an alternative to a straight sale, another approach which can be an effective way to turn a poor rental into a better cash flow, while retaining the objective to sell, is to turn it into a rent-to-own.   Find yourself a tenant/buyer interested in owning the townhouse.  Set an strike price, sell them an option and rent to them until they exercise that option.  Alternatively you could do an instalment sale.  You should consult with your accountant to see which approach best fits your circumstances w/r to taxation.   

You will also need to educate yourself on the nuances of both strategies.  There is a book my Mark Loeffler "Investing in Rent-to-Own Property" which will give you an introduction.  We've done a couple of them, but there are other Canadians on BP which carry out rent-to-own strategies more regularly ... I believe @Doug Pretorious may be one of them

As to your next question: "Where in Canada is good for rental property right now?" the answer is there are pockets across the country, but property prices are quite full everywhere.   Here in the Maritimes things are not quite as crazy, but neither is the economy as strong.  University / Government cities such as Fredericton and Halifax are fully priced, but deals can still be found.  Saint John, NB has some cheap prices right now, but the local economy is stalled, though it may see new life breathed into it if the Federal Government and Trans-Canada push the bitumen pipeline through.

There are areas of new drilling/development in SK where prices have yet to go completely berserk.   In Ontario, once you get clear of the Big Smoke there are still pockets where you can tease out a deal.

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